1. Purposes
of Plan. The general purposes of this 2005 Equity Compensation Plan
(“Plan”) are to provide associates and non-associate directors of J. C. Penney
Company, Inc., its subsidiaries and affiliates, or any unit thereof (together
referred to herein as “Company”), an opportunity to increase their proprietary
interests as stockholders in order to motivate them to continue and increase
their efforts on the Company’s behalf to sustain its progress, growth, and
profitability, and to assist the Company in continuing to attract and retain
associates and non-associate directors capable of assuring the Company’s future
success. This Plan permits the grant of stock options, stock appreciation
rights, restricted stock and stock units, stock, and cash incentive awards,
each as will be subject to such conditions based upon continued employment,
passage of time or satisfaction of performance criteria as shall be specified
pursuant to the Plan or set by the Committee (as defined in Section 5
below).

2. Shares
Subject to Plan.

(a) Reserved
Shares. The maximum number of shares of J. C. Penney Company, Inc. Common
Stock of 50¢ par value (“Common Stock”) upon which options to purchase shares
of Common Stock (“Stock Options”), stock appreciation rights (“SARs”), or awards of Common Stock or share units (“Stock
Awards”), (“Stock Options,” “SARs,” and “Stock
Awards” herein collectively called “Equity Awards”), may be issued under the
Plan is 14,400,000 shares, plus up to 2,800,000 shares which on
May 31, 2005 are reserved but not then subject to awards under the
Company’s 2001 Equity Compensation Plan (referred to herein as the “Prior
Plan”). In no event may more than: (i) 30% of
the shares reserved for issuance under the Plan be issued as Stock Awards over
the term of the Plan; (ii) 5,000,000 shares of Common Stock be issued
pursuant to incentive stock options (“ISOs”) within
the meaning of Section 422 of the Internal Revenue Code of 1986, and any
regulations promulgated thereunder, or any similar
successor statute or regulation, as in effect from time to time (“Code”) over
the term of the Plan; or (iii) 1,000,000 shares of Common Stock be
issued as Stock Awards that are intended to qualify as performance-based
compensation for purposes of Section 162(m) of the Code in any one year
for any one Associate Participant. Notwithstanding anything contained herein to
the contrary, the number of Equity Awards, singly (as defined in Section 4
below) or in combination, granted to any associate or non-associate director in
any two consecutive fiscal years shall not in the aggregate exceed 3,000,000.

(b) Share
Accounting. Common Stock issuable under the Plan
may be, in whole or in part, as determined by the J. C. Penney Company, Inc.
Board of Directors (“Board of Directors” or “Board”), authorized but unissued shares, reacquired or treasury shares, or shares
available from prior plans. If any Stock Option or SAR granted under the Plan
(or any prior Plan) expires or terminates for any reason without having been
exercised in full, or if any Stock Award is not earned in full, the unpurchased or unearned shares will again be available for
use under the Plan. Also, the pool of shares available under the Plan will not
be reduced if any Equity Award is paid in cash rather than shares of Common
Stock. “Common Stock” includes any security issued in substitution, exchange,
or in lieu thereof. Also, any option to purchase securities assumed in an
acquisition of another company will not be included in the pool of shares
available under the Plan.

3. Cash Incentive Awards. The
Committee may grant cash incentive awards (“Cash Incentive Awards”) to
Associate Participants on such terms and conditions as the Committee may
determine. Cash Incentive Awards are performance-based (see Section 9
below), annual or long-term awards that are expressed in U.S. currency.
Cash Incentive Awards to any individual associate may not exceed the

product
of $1,500,000 and the number of years in the Performance Cycle (as defined in
Section 9 below). (Equity Awards and Cash Incentive Awards are herein
collectively referred to as “Awards”.)

4. Eligibility
and Bases of Participation. Under the Plan: (i) Awards
may be made to such associates, including officers and associate directors of
the Company, as the Committee (as hereinafter defined) may determine
(“Associate Participants”); and (ii) Equity Awards will be made pursuant
to Section 14 below, to individuals who serve as non-associate directors
of the Company (“Non-Associate Director Participants” and, together with
Associate Participants, “Participants”). In determining the Associate
Participants who are to receive Awards and the number of shares covered by any
Award, the Committee may take into account the nature of the services rendered
by the Associate Participants, their contributions to the Company’s success,
their position levels and salaries, and such other factors as the Committee, in
its discretion, may deem relevant in light of the purposes of the Plan.

5. Administration
of Plan. The Plan will be administered by, or under the direction of, a
committee (“Committee”) of the Board of Directors constituted in such a manner
as to comply at all times with Rule 16b-3 or any successor rule
(“Rule 16b-3”) promulgated by the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as
in effect from time to time (“Exchange Act”) and Section 162(m) of the
Code. The Committee shall administer the Plan so as to comply at all times with
the Exchange Act and the Code, and shall otherwise have plenary authority to
interpret the Plan and to make all determinations specified in or permitted by
the Plan or deemed necessary or desirable for its administration or for the
conduct of the Committee’s business. All interpretations and determinations of
the Committee may be made on an individual or group basis, and shall be final,
conclusive, and binding on all interested parties. The Committee may delegate,
to the fullest extent permitted by law, its responsibilities under the Plan to
persons other than its members, subject to such terms and conditions as it may
determine, other than: (i) the making of grants
and awards under the Plan to individuals subject to Section 16 of the
Exchange Act; and (ii) regarding performance-based Awards intended to be qualified
under Section 162(m) of the Code. With respect to Participants subject to
Section 16 of the Exchange Act, transactions under the Plan are intended
to comply with all applicable conditions of Rule 16b-3. To the extent any
provision of the Plan or any action by the Committee or its delagatee
fails to so comply, such provision or action will, without further action by
any person, be deemed to be automatically amended to the extent necessary to
effect compliance with Rule 16b-3, provided that if such provision or
action cannot be amended to effect such compliance, such provision or action
will be deemed null and void, to the extent permitted by law and deemed
advisable by the relevant authority. Each Award to a Participant subject to
Section 16 of the Exchange Act under this Plan will be deemed issued
subject to the foregoing qualification.

ASSOCIATE
PARTICIPANT AWARDS

6. Stock
Options.

(a) Grants.
The Committee may grant Stock Options to Associate Participants on such terms
and conditions as the Committee may determine. These Stock Options may be ISOs within the meaning of Section 422 or any
successor provision of the Code, or non-qualified stock options within the
meaning of the Code (“NSOs”), or a combination of
both; provided, however, that an Associate Participant must be an associate of
the Company or its subsidiaries in order to receive an ISO grant. In no event,
however, may an Associate Participant be given an ISO grant which first becomes
exercisable in any calendar year which, when added to all other ISO grants held
by such Associate Participant that first become exercisable in that calendar
year, causes the aggregate dollar amount of such ISO grants to exceed $100,000.
The date of grant of each Stock Option will be the date specified by the
Committee; provided, however, that such date of grant may not be prior to the
date of such action by the Committee.

(b) Payment
Methods. The option price (and, as provided in Section 16 of the Plan,
any applicable taxes thereon) of the shares as to which a Stock Option is
exercised will be paid in such manner as the Committee may determine in
accordance with the Plan’s purposes, including: (i) in
cash;

(ii) in shares
of Common Stock that have been held for a period of at least six months and a
day; or (iii) in any combination of (i) or
(ii) above. Each Stock Option will have such terms and conditions for its
exercise, including the manner and effective date of such exercise, as the
Committee may determine, except as otherwise specifically provided herein.
However, a Stock Option grant or its equivalent may not vest in whole in less
than three years from the date of grant (although individual options may vest
in equal annual installments over a period of not less than three years) except
in certain limited situations such as for new hires, retirement and similar
situations warranting a shorter or no vesting period, as may be determined by
the Committee, and, if the grant is performance-based, the restriction must be
for at least one year.

(c) Option Price/Repricing.
The option price per share of Common Stock purchasable under a Stock Option
will be determined by the Committee (or, for Associate Participants not subject
to Section 16 of the Exchange Act, its delagatee,
pursuant to Section 5 above) at the time of grant; provided, however, no
such price may be less than 100% of the “fair market value” of the shares of
Common Stock covered by the grant on such date. Also, in no event may any Stock
Option exercise price be reset from its original grant price.

“Fair market
value” of the Common Stock on any date will be the opening price on such date
as reported in the composite transaction table covering transactions of New
York Stock Exchange listed securities, or if such Exchange is closed, or if the
Common Stock does not trade on such date, the closing price reported in the
composite transaction table on the last trading date immediately preceding such
date, or such other amount as the Committee may ascertain reasonably to
represent such fair market value.

(d) Exercise
of Stock Options. Each Stock Option will become exercisable upon such date
as the Committee may determine, or as provided in Sections 10 or 11 of the
Plan, and may be exercised thereafter at any time during its term, as to any or
all full shares which have become purchasable under
the provisions of the Stock Option. The term of each Stock Option may not
exceed: (i) 10 years in the case of an ISO
or such other term as may be required for the Stock Option to constitute an ISO
under the Code; and (ii) in the case of a NSO,
10 years or such shorter period of time as determined by the Committee on
the date of grant (“exercise period”), in each case measured from the date of
its grant. Except as provided in Section 11 or 15 of the
Plan, a Stock Option may be exercised only by the Associate Participant, and
only if the Associate Participant is then an associate of the Company, or of a
subsidiary or affiliate of the Company.

7. Stock
Awards. The Committee may grant a Stock Award (including any associated
dividend equivalent right or share unit equal in value to such Stock Award) to
Associate Participants on such terms and conditions as the Committee may
determine. The Committee may determine the types of Stock Awards made, the
number of shares, share units, or dividend equivalent rights covered by such
awards, and any other terms and conditions relating to the Stock Awards as it
deems appropriate, including any vesting conditions necessary to comply with
the laws of the State of Delaware.
However, a Stock Award or its equivalent that is restricted may not vest in
whole in less than three years from the date of grant (although individual
Stock Award shares may vest in equal annual installments over a period of not
less than three years) except in certain limited situations such as for new
hires, retirement and similar situations warranting a shorter or no vesting
period, as may be determined by the Committee.

Any dividend
equivalent paid as part of a restricted stock unit award will be reinvested in
additional restricted stock units that will accumulate over the vesting period
of the underlying restricted stock units and vest, if ever, concurrently with
the underlying restricted stock units.

8. Stock
Appreciation Rights. The Committee may grant SARs
covering shares of Common Stock to Associate Participants on such terms and
conditions as the Committee may determine. The Committee may cancel or place
limits on the term of or amount payable by the Company upon exercise of any SAR
at any time prior to exercise. SARs may be granted
independently or in tandem with any

other
Award under the Plan. Tandem SARs may be granted
concurrently with or subsequent to the grant of the related Award. An SAR will
entitle an Associate Participant to receive an amount no greater than the
excess of the fair market value of a share of Common Stock on the date of
exercise, or such other date as the Committee may determine, over the SAR
exercise price, multiplied by the number of shares of Common Stock with respect
to which the SAR will have been exercised. Such payment may be made by the
Company only in shares of Common Stock. The SAR exercise price will be
determined by the Committee at the time of grant; provided, however, that no
such price may be less than 100% of the fair market value of the shares of
Common Stock covered by the grant on such date. Upon exercise of a tandem SAR,
in whole or in part, the related Award will be canceled or forfeited
automatically to the extent of the number of shares covered by such exercise
and, conversely, if a tandem Award is exercised, forfeited, or terminated, as
the case may be, for any reason, in whole or in part, the related SAR will be
canceled automatically to the extent of the number of shares covered by such
exercise, forfeiture, or termination.

9. Performance-Based
Awards. Any Award granted pursuant to the Plan may be in the form of a
performance-based award made through the application of Performance Goals and
Performance Cycles, which are defined as follows:

(a) “Performance
Cycle” means the period selected by the Committee during which the
performance of the Company or any Associate Participant is measured for the
purpose of determining the extent to which an Award subject to Performance
Goals has been earned. A Performance Cycle may not be less than one year.

(b) “Performance
Goals” means the objectives for the Company or any Associate Participant
that may be established by the Committee for a Performance Cycle with respect
to any Performance-Based Award contingently awarded under the Plan. The
Performance Goals for Awards that are intended to constitute
“performance-based” compensation within the meaning of Section 162(m) of
the Code shall be based on one or more of the following criteria: earnings per
share, total stockholder return, operating income, net income, cash flow, gross
profit, gross profit return on investment, return on equity, return on capital,
sales, revenue, gross margin, and gross margin return on investment.

(c) Vesting.
A Performance-Based Award, other than a restricted Equity Award, may not vest,
or be deemed to be earned, in whole in less than three years from the date of
grant (though portions of an individual award may vest or be deemed to be
earned in equal annual installments over a period of not less than three
years). A Performance-Based Award to be paid out as a restricted Equity Award
may not have a vesting period of less than one year.

10. Change
of Control. For purposes of this Section 10, all references to
“Company” are to J. C. Penney Company, Inc. Upon a Change of Control
of the Company, each Associate Participant will have the right to exercise any
and all Stock Options and SARs held by the Associate
Participant, and all Stock Awards will immediately vest, be deemed to have been
earned and any Performance Goal for the then applicable Performance Cycle met,
on such terms and conditions as may be determined by the Committee at the time
of the grant or award. The Committee may exercise discretion to terminate the
Plan upon a Change of Control event and distribute amounts within
12 months of the Change of Control event.

For purposes
of the Plan, a “Change of Control” is defined by Section 409A of the Code,
and any regulations and guidance promulgated under this Section as set forth in
the Committee’s determinations for the applicable grants under the Plan.

11. Changes
in Employment Status, Death. In the event of an Associate Participant’s
termination of employment, layoff, incapacity, or death (regardless of whether
the deceased was employed at death), the Committee may determine the terms and
conditions applicable to any Award previously granted to the Associate
Participant and not then exercised or earned in full, as the case may be,
including, without limitation: (i) the duration
of any exercise period following such event (which may not

exceed
the original exercise period for a Stock Option or SAR); (ii) any
necessary or appropriate authorization to the Associate Participant’s legatee, distributee, guardian, legal representative, or other third
party, as the Committee may determine; or (iii) the circumstances under
which all or part of such Stock Options and SARs may
be terminated and any unearned Stock Awards forfeited or Cash Incentive Awards
paid. All determinations by the Committee with respect to the foregoing shall
be final, conclusive, and binding on all interested parties.

12. Right to
Continued Employment. Nothing in the Plan shall confer on an Associate
Participant any right to continue in the employ of the Company or any of its
subsidiaries or affiliates or affect in any way the right of the Company or any
of its subsidiaries or affiliates to terminate such Associate Participant’s
employment without prior notice at any time for any reason or for no reason.

13. Deferred
Payments. The Committee may allow a Participant to defer receipt of all or
part of any cash or stock payment under the Plan, or to defer receipt of all or
part of any such payment. Any deferral will be for such period and in
accordance with the terms and conditions as the Committee may determine and
must be in compliance with Section 409A of the Code. The method of payment
for, and type and character of, any Award may not be altered by any deferral
made under this Section.

NON-ASSOCIATE DIRECTORPARTICIPANTAWARDS

14. Annual
Awards

(a) General
Provisions. Subject to the terms and conditions of this section, each
person who is serving as a non-associate director of the Company on the date of
grant of an Equity Award (including any former Associate Participant)
(“Non-Associate Director Participant”) will automatically be awarded an Annual
Equity Award in an amount which the Board of Directors determines, based upon
the advice of outside consultants, to be competitive by industry standards, and
pursuant to such terms, conditions, and restrictions as determined by the Board
of Directors (the “Annual Equity Award”). These Annual Equity Awards will begin
in 2006 (except for any pro rata award for a newly elected director
which may occur at any time on or after the effective date of the Plan) and
continue through May 31, 2010, unless earlier terminated by the Board of
Directors. The date of each Annual Equity Award will be the third full trading
date following the later of: (i) the date on
which the Annual Meeting of the Company’s stockholders, or any adjournment
thereof, is held (“Annual Meeting”); or (ii) the date on which the
Company’s earnings for the fiscal quarter immediately preceding such Annual
Meeting date are released to the public. Also, Equity Awards in a pro rata amount
of the Annual Equity Award for that year, based on the date of election, will
automatically be granted to each individual (other than a former Company
Associate Participant) who is first elected a Non-Associate Director after
May 31, 2005, on the third full trading date following the effective date
of such election.

(b) Right
to Tender, Exchange. A Non-Associate Director Participant (including for
purposes of this paragraph a Non-Associate Director Participant’s guardian or
legal representative) will have, with respect to any shares covered by an
Annual Equity Award and any shares already received pursuant to an Annual
Equity Award under this Plan, the right to: (i) tender
or exchange any such shares in the event of any tender offer or exchange within
the meaning of Section 14(d) of the Exchange Act or any plan of merger
approved by the Board; and (ii) sell or exercise any option, right,
warrant, or similar property derived from or attributable to such shares after
such option, right, warrant, or similar property becomes transferable or
exercisable. If any shares covered by an Annual Equity Award are tendered or
exchanged or any option, right, warrant, or similar property attributable
thereto is sold, exercised, or redeemed for value, the cash and/or property
received will be delivered to the Company (or its successor) and held subject
to the restrictions of the Plan as if it were the stock itself.

(c) Non-Transferability.
A Non-Associate Director Participant may not transfer, sell, assign, pledge, or
otherwise encumber or dispose of any shares of Common Stock received in
connection with an Annual Equity Award prior to the time his or her service as
a director expires or is terminated, other

than
by will or the laws of descent and distribution or by such other means as the
Committee, in its discretion, may approve from time to time and any attempt to
do so will be void.

(d) Non-Associate
DirectorParticipant’s Termination. If a
Non-Associate Director Participant’s service as a director of the Company
terminates on account of any act of: (i) fraud
or intentional misrepresentation; or (ii) embezzlement, misappropriation,
or conversion of assets or opportunities of the Company or any subsidiary of
the Company, such termination will be considered a “Non-Qualifying
Termination.” All other terminations, including termination by reason of death,
will be considered “Qualifying Terminations”. In the event of a Non-Qualifying
Termination, all outstanding restricted Awards made pursuant to this Section
will be forfeited or canceled, as the case may be.

(e) Stock
In Lieu of Cash. A Non-Associate Director Participant may also elect to
receive Common Stock in lieu of the cash compensation payable for services
rendered as a director, so long as such election is made in accordance with
Section 16 of the Exchange Act and on such other terms and conditions as
may be determined from time to time by the Board of Directors. Any such Common
Stock issued to a Non-Associate Director Participant in lieu of cash
compensation will automatically vest (become non-forfeitable and freely
transferable) in the Non-Associate Director Participant on the date of
issuance.

GENERAL

15. Transferability.
No unearned Award, or any portion thereof, granted under the Plan may be
assigned or transferred other than by will or the laws of descent and
distribution or by such other means as the Committee, in its discretion, may
approve from time to time and any attempt to do so will be void. No Stock
Option or SAR will be exercisable during the Associate Participant’s lifetime
except by the Associate Participant or the Associate Participant’s guardian or
legal representative, or other third party, as the Committee may determine.

16. Taxes.
The Company has the right to deduct from any cash payment made under the Plan,
or otherwise, to any Associate Participant, including an Associate Participant
subject to Section 16 of the Exchange Act, any federal, state, or local
taxes of any kind required by law to be withheld by it (“Withholding
Obligation”) with respect to such payment. The Withholding Obligation will be
limited to the minimum statutory rate. The Company’s obligation to deliver
shares of Common Stock pursuant to any Award under the Plan is conditioned on
the payment by the Associate Participant to the Company of any Withholding
Obligation arising therefrom. The Company may
withhold, in satisfaction of all or a portion of such Withholding Obligation
referred to in the preceding sentence, that number of shares of Common Stock
having an aggregate fair market value sufficient to satisfy the amount of such
obligation.

17. Changes
in Capitalization and Similar Changes. In the event of any change in the
number of shares of Common Stock outstanding, or the assumption and conversion
of outstanding Awards, by reason of a stock dividend, stock split, acquisition,
recapitalization, reclassification, merger, consolidation, combination or
exchange of shares, spin-off, distribution to holders of Common Stock (other
than normal cash dividends), the Committee shall adjust to the extent
appropriate: (i) the option price under each
unexercised Stock Option; (ii) the exercise price under each unexercised
SAR; and (iii) the number and class of shares which may be issued on
exercise of Stock Options and SARs granted and for
Stock Awards earned, and may make any other related adjustments deemed
appropriate and equitable by the Committee. Any such adjustment with respect to
ISOs shall also conform to the requirements of
Section 422 of the Code.

18. Stockholder
Rights. A Participant (including for purposes of this Section, a
Participant’s legatee, distributee, guardian, legal
representative, or other third party, as the Committee may determine) will have
no stockholder rights with respect to any shares subject to an Award until such
shares are issued to such Participant. Shares will be deemed issued on the date
on which they are

registered in the Participant’s (as this term is defined in the preceding
sentence) name on the Company stock records.

19. Effective
Date. The Plan will become effective on June 1, 2005, subject to
approval by the affirmative vote of the holders of a majority of the
outstanding stock of the Company having general voting power at the Company’s
2005 Annual Meeting of Stockholders.

20. Termination
and Amendment. No Award may be made under the Plan after May 31, 2010.
The Board of Directors may terminate the Plan or make such amendments as it
deems advisable, including, but not limited to, any amendments to conform to or
reflect any change in any law, regulation, or ruling applicable to an Award or
the Plan, provided, however, that the Board of Directors may not, without
approval by affirmative vote of the holders of a majority of the outstanding
stock of the Company having general voting power: (i) take
any action which will increase the aggregate number of shares of Common Stock
which may be issued under the Plan (except for adjustments pursuant to
Sections 2 and 17 of the Plan); (ii) decrease the grant or exercise
price of any Award to less than fair market value of its underlying Common
Stock on the date of grant; (iii) change the individual award limits found
in Sections 2 and 3 or any other maximum limit included in the Plan to
comply with requirements for performance-based compensation under
Section 162(m) of the Code; (iv) change the separate limit for ISOs set forth in Section 2; (v) change the class
of Associate Participants eligible for Awards under Section 4; or
(vi) change the performance criteria applicable to Performance-Based
Awards under Section 9. Except as otherwise provided in or permitted by
the Plan or by the terms, if any, of an Award under the Plan, no termination or
amendment of the Plan or change in the terms of an outstanding Award may
adversely affect the rights of the holder of any Award without the consent of
the holder.

21. Severability
of Provisions. If any provision of this Plan becomes or is deemed invalid,
illegal, or unenforceable in any jurisdiction, or if any such provision would,
in the sole determination of the Committee, disqualify the Plan or any Award
under any law deemed applicable by the Committee, such provision will be
construed or deemed amended to conform to applicable law or if, in the sole
determination of the Committee, such provision cannot be so construed or so
deemed amended without materially altering the intent of the Plan, such
provision will be stricken and the remainder of the Plan will remain in full
force and effect.

22. Governing
Law. This Plan will be governed by the internal
laws of the State of Delaware, regardless of
the dictates of Delaware
conflict of laws provisions.